Cost-Benefit Analysis – Best Approach To Regulate Banks

The “norming” mentality led to weak regulations and an under-capitalized banking sector, and cost-benefit analysis is the best approach to regulate banks, says Chicago Law School. Eric A. Posner of the University of Chicago published a report in September with the title: “How Do Bank Regulators Determine Capital Adequacy Requirements?” He notes it has never been clear how regulators determine the minimum capital-asset ratio. Insufficient bank capitalization The author notes that the incentive to take socially costly financial risks is inherent in banking. Such a perverse incentive to take financial risk is further aggravated by underpriced government-supplied insurance and the government’s readiness to play…